Business Model Fundamentals

To be in business, you must offer value to customers. To stay in business, you need to make an adequate profit. The topics in this lesson will help you:

  • Clarify your value proposition—how you propose to create value for your customer
  • Outline your business model—how you propose to create value for your business

We find two of the visual frameworks from the Strategyzer Series to be particularly helpful:

In addition, we’ll introduce two complementary tools:

Connecting the Dots

Connect the Dots
Here’s how some of the key concepts presented in this workshop are related.
  • The Empathy Map Canvas helps you identify opportunities to add value to your targeted customers.
  • The Value Proposition Canvas helps you determine how you propose to deliver value with your products and services.
  • Marketing Physics helps you articulate your value proposition compellingly.
  • The Business Model Canvas helps you identify Key Resources and Activities required to fulfill the promise of your value proposition.
  • Simulating Models help you connect Key Resources and Key Activities in order to explain, explore, and communicate the conditions under which you can deliver value profitably over time.
  • The OODA Cycle reminds us that strategy is an iterative process related to the pace of change.

The Value Proposition Canvas

The Value Proposition Canvas consists of two sides:

  • The Customer Profile (on the right) helps you structure your thinking about a specific customer segment.
  • The Value Map (on the left) helps you describe how you intend to create value for that customer segment.
The Value Proposition Canvas consists of a Value Map (on the left) and a Customer Profile (on the right). There is value if there is a match between the two.

The Business Model Canvas

The Business Model Canvas builds on The Value Proposition Canvas. In particular, The Business Model Canvas prompts you to identify the key resources your business will require as well as the activities necessary to build, acquire, or otherwise access such resources. In Strategy Dynamics Basics, we’ll explore how to convert these static “snapshots” into dynamic “movies” of your business.

The Business Model Canvas consists of nine “building blocks”, including the Customer Segment(s) and Value Proposition(s) from The Value Proposition Canvas.

Managing Strategy

The concepts presented in this module address the second of the three components of strategic management:

  • Choosing objectives
  • Positioning the organization relative to competitors
  • Steering progress over time

As noted in the workshop overview, your positioning, once tested by the market, usually won’t change much except through extension to new opportunities. So, are the models presented here only of interest to new companies or new customer segments? We don’t think so.

As Don Greer explains in Decision Making with the OODA Cycle, we act on the basis of how we make sense of what we observe. We do so through the application of our knowledge, which consists of the models in our head. As Laura Black notes in Seeing What You Say, it’s difficult to know what we think unless we see what we say. The Value Proposition Canvas and The Business Model Canvas are concise representations—snapshots—of what we think.

By making our assumptions explicit through the use of such representations, we make them testable. Consequently, when the world changes and invalidates our assumptions, we’ll be better positioned to re-orient and adapt our actions more quickly.

As a practical matter, relying on our faulty memory is dicey, and, once written, nobody refers back to drawn-out business plans. As an alternative, a one-page, visual summary of the assumptions underpinning our strategy is pretty useful—for startups and established businesses alike.

Estimated Time to Complete This Lesson

It will take you around 30 to 45 minutes to read and watch the material in this lesson. Creating an “ugly first draft” of The Empathy Map Canvas, The Value Proposition Canvas, and The Business Model Canvas will take about 30 minutes each.

Lesson Overview2 min2 min
The Empathy Map Canvas3 min4 min7 min
The Value Proposition Canvas5 min3 min8 min
Marketing Physics4 min3 min7 min
The Business Model Canvas6 min2 min8 min
Total20 min12 min32 min